After struggling to find a bottom amid the tech correction, shares of CrowdStrike (CRWD) have surged almost 40% in the past three months. Having beaten revenue estimates for thirteen straight quarters, CrowdStrike continues to produce strong financial results. But is it time to take profits?
The cybersecurity specialist is set to report second quarter fiscal 2022 earnings results after the closing bell Tuesday. Demand for better cybersecurity and overall awareness has surged over the past two years, driven by corporate digitalization and the massive shift to remote work. Among the biggest beneficiaries of this trend has been CrowdStrike; the company’s next-generation endpoint security technology is a cloud-native platform aimed at stopping data breaches before they can inflict damage.
Now armed with strong free cash flow and with a solid balance sheet, CrowdStrike's management team has done a solid job executing on the company’s stated objectives of dominating the cloud security market. That’s likely to be the case for the foreseeable future, especially as governments and corporations adopt cyber defense architectures that are software-defined and cloud-native. In its last earnings report, revenue grew 61% year over year to $488 million, beating its own guidance of 52% growth.
The company also issued guidance that was significantly higher than analysts' estimates. Yet the stock has fallen 30% over the past year, trailing the 9% decline in the S&P 500 index. Currently trading at roughly 17 times forward revenue, CrowdStrike remains attractively priced, given the opportunity it has to grow market share in the quarters ahead. For that to matter, the company on Tuesday must deliver another top- and bottom line beat and issue upside guidance on to demonstrate that value.
For the three months that ended July, Wall Street expects the Sunnyvale, Calif.-based company to earn 27 cents per share on revenue of $515.47 million. This compares to the year-ago quarter when earnings were 11 cents per share on revenue of $337.69 million. For the full year, ending in January, earnings are expected to rise 79% year over year to $1.20 per share, while full-year revenue of $2.21 billion would rise 51.9% year over year.
The company’s ability to execute has never come into question. Aside from a surge in new customer acquisitions, CrowdStrike continues to find ways to get its existing customers to add more features and functionality. During the span of the past sixteen quarters, the company has surpassed retention rate of 120% (dollar-based) which means that its customers recognize the value in the products and services they are purchasing from CrowdStrike.
The fact that CrowdStrike has achieved retention rate of 120% despite intense competition from the likes of Palo Alto Networks (PANW), Zscaler (ZS) among others, highlights its leading position in the cloud security market. In the first quarter the company not only beat revenue and profit estimates, it also guided higher. Q1 adjusted EPS of 31 cents per share beat consensus estimates by 8 cents per share, while Q1 revenue of $487.83 million rose 61% year over year, surpassing Street estimates $11 million.
The company also produced a 32% increase in net new annual recurring revenue which rose to $190.5 million. In terms of profitability, for the third consecutive quarter, the company reported record operating cash flow and free cash flow of more than 30% margins. Combined with its 50%+ revenue growth, this make CrowdStrike a compelling growth story in today's market. And with the stock down 30% over the past year, I believe there’s a strong opportunity here for the investor to add a quality company to their portfolios.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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